Arctic Glacier Income Fund
TSX : AG.UN

Arctic Glacier Income Fund

November 10, 2006 07:00 ET

Arctic Glacier Posts Record Third Quarter Results

Acquisitions Drive Major Performance Metrics To New Highs

WINNIPEG, MANITOBA--(CCNMatthews - Nov. 10, 2006) - The Arctic Glacier Income Fund (TSX:AG.UN) today announced record results for the three months ended September 30, 2006.

Highlights

- Increased sales by $30.6 million or 42%

- Increased EBITDA by $10.7 million or 34%

- Increased earnings by $1.9 million to $19.1 million

- Increased distributable cash by $7.1 million or 25%

- Acquired remaining two of six companies comprising California Ice

- Brought online new Milwaukee production plant

- Introduced new technology for acquired operations in California and New York

"We are extremely pleased with the third quarter results. Arctic Glacier's main performance metrics reached new highs in the third quarter of 2006, which directly reflect our growth initiatives," said Robert Nagy, President and CEO of Arctic Glacier Inc., the Fund's operating company.

During the third quarter, Arctic Glacier acquired the remaining two of six companies comprising California Ice, the largest manufacturer and distributor of packaged ice in the state. The US$188.5 million acquisition is the largest transaction in the company's history.

"Completing the California Ice acquisition substantially increased business volumes and broadened our geographic footprint into a market characterized by warmer weather, extended peak selling season, reduced seasonality and favorable population growth," Mr. Nagy said. "These advantages served to insulate the overall operating company from the effects of variable weather in other geographic regions, as our third-quarter results indicate."

Also contributing to Arctic Glacier's higher results were Happy Ice LLC of Fairport, New York, acquired in June 2006, and Hometown Ice of Milwaukee, Wisconsin, purchased in the third quarter of 2005.

"Arctic Glacier's improved third-quarter performance reflects the substantially broadened scale of operations that resulted from acquisitions completed over the past year," said Keith McMahon, Executive Vice President and Chief Financial Officer of Arctic Glacier. "We also continued to enhance productivity by implementing improvements at acquired operations across North America."

Mr. McMahon said further gains in profitability are anticipated when the benefits of current integration and rationalization initiatives fully accrue up to two years from their time of implementation. During the third quarter Arctic Glacier brought online the new Milwaukee production plant, installed improved material handling equipment at a production facility at Twin Oaks, Pennsylvania and installed new technology for acquired operations in California and New York.

Third Quarter Financial Review

Sales in the third quarter of 2006 totaled $104.2 million, an increase of $30.6 million or 42% from the same period in 2005. The increase was primarily attributable to acquisitions completed by the Fund.

Sales in previously serviced markets declined by $4.3 million or 6% from the third quarter of last year, mostly due to a quiet hurricane season compared to 2005. Excluding hurricane-related shipments, sales eased by approximately 1%. Weather was favorable during July and the first week of August but was unseasonably cool and rainy in northeastern and central U.S. markets through the latter part of August and September. The stronger Canadian dollar reduced sales in previously serviced markets by $3.5 million. For the first nine months of 2006, sales increased by 33% over 2005 to $179.3 million.

EBITDA during the quarter was $42.3 million, an increase of $10.7 million or 34% from the same period last year. Of the total increase, California Ice, Hometown Ice and Happy Ice contributed $16.2 million, while EBITDA for previously serviced operations decreased by $4.0 million or 13% over 2005 due to an absence of hurricane-related business, higher energy costs, additional costs of purchasing and transporting ice in July and early August and reduced operational efficiencies as a result of the less favorable weather and decreased volumes in late August and September. The overall gain in EBITDA was partly offset by the stronger Canadian dollar, which reduced the Canadian-dollar amount of costs incurred in U.S. markets by $1.5 million. EBITDA for the first nine months of 2006 jumped 41% to $58.4 million.

Earnings for the quarter totaled $19.1 million or $0.59 per unit (basic), compared to $17.1 million or $0.72 per unit (basic), for the same period in 2005. For the nine-month period, earnings were $23.7 million, an increase of $5.9 million over 2005. Year-to-date earnings per unit (basic) moved up to $0.79 from $0.75 last year.

Accretive acquisitions drove a 25% increase in distributable cash, to $35.7 million during the quarter. On a per-unit basis distributable cash was $1.09, compared to $1.19 in the third quarter of 2005. The reduction in per-unit results was mainly attributed to the two-stage timing of the California acquisition, with the capital raised in May for all six companies but the final two not acquired until August. On a pro forma basis if all of the companies had been acquired in May when the capital was raised, the additional summer contribution would have increased distributable cash to $38.0 million or $1.17 per unit for the quarter. On a year-to-date basis, distributable cash for 2006 increased to $45.2 million or $1.50 per unit from $32.3 million or $1.37 per unit last year.

The Fund declared distributions to unitholders totaling $9.0 million during the quarter, up 31% from 2005. That equates to $0.28 per unit for the third quarter in both years. The Fund's current monthly distribution rate of $0.0917 per unit, set in March 2005, equates to an annualized distribution rate of $1.10 per unit.

The Fund expects to continue generating sufficient cash in 2006 to exceed the current distribution rate.

Financial Position

The Fund had net long-term debt (excluding convertible debentures) at September 30, 2006 of $166.7 million, resulting in a net debt to trailing 12-month EBITDA ratio of 2.3 to 1, compared to 1.4:1 last year. These ratios reflect an increase to trailing EBITDA of $13.2 million ($1.3 million for the 12 months ended September 30, 2005) to give effect to the contribution of acquisitions and foreign currency option gains. Arctic Glacier expects the net debt to trailing EBITDA ratio to decline as cash from operations in excess of cash distributions is applied against debt.

At September 30, 2006 the Fund had US$32.0 million of credit available under a revolving term facility.

Strong Outlook

The record results achieved by Arctic Glacier in the third quarter and nine-month periods of 2006 clearly demonstrate the effectiveness of the Fund's acquisition strategy and active asset management.

Strategic acquisitions over the past 12 months, in particular California Ice and Happy Ice, have powered the Fund's principal performance metrics to unprecedented highs. These new benchmarks point to the greatly broadened scale of Arctic Glacier's operations and underline the accretive benefits of their contributions.

With these acquisitions completed, management is currently implementing a carefully targeted program of rationalization and integration across all acquired operations. These activities are of equal importance to the acquisitions themselves because they incorporate productivity-enhancing improvements that add to accretiveness and increase distributable cash per unit. The effects of these improvements will become evident during 2007 and 2008, because their benefits are typically not realized until 18 to 24 months following their implementation.

Management anticipates the Fund's payout ratio to improve to approximately 85% or less during 2006, from 92.5% in 2005.

Over the past year, Arctic Glacier has grown significantly to solidify its position as the second-largest packaged ice provider in North America. The Fund's broadened market presence, strengthened profitable operations, robust cash flow and solid financial position will enable the Fund to continue making distributions to unitholders while seeking further acquisitions in the future.

Proposed change in federal tax policy

Subsequent to the third quarter, the Government of Canada announced proposed changes to the taxation of income trusts to begin taxing them at similar rates as corporations. A four-year transition period has been proposed for existing income trusts. We believe that the Fund's cash distributions will offer significant protection to unitholders from the proposed changes when they take effect in 2011. Approximately 40% of the Fund's cash distributions are expected to be classified as Return of Capital, which is not subject to the proposed tax. In addition, the Fund's Canadian subsidiaries currently have loss carryforwards and capital cost allowance pools that can be used to offset future Canadian taxable income. It also appears that the income that the Fund earns as a result of its U.S. operations may not be subject to the proposed tax when it is implemented. These views will be subject to a detailed review of the proposed legislation when it is released. We are also reviewing the Fund's capital structure to determine the most efficient means to continue to execute its strategy to enhance unitholder value.

Arctic Glacier will discuss third quarter 2006 results during a conference call with a live audio webcast for investors and analysts on Friday, November 10 at 11 a.m. (EST). To access the simultaneous webcast, please visit Arctic Glacier's website at www.arcticglacierinc.com. Please note the webcast allows participants to listen only.

Arctic Glacier Income Fund, through its operating company, Arctic Glacier Inc., is a leading producer, marketer and distributor of high-quality packaged ice in North America under the brand name of Arctic Glacier® Premium Ice. Arctic Glacier operates 36 production plants and 50 distribution facilities across Canada and the northeast, central and western United States, servicing more than 68,000 retail accounts.

Arctic Glacier Income Fund trust units are listed on the Toronto Stock Exchange under the trading symbol AG.UN. There are 33.1 million trust units outstanding.

This news release contains forward-looking statements, which are subject to certain risks, uncertainties and assumptions. A number of factors could cause actual results to differ materially from the results discussed in these forward-looking statements, and there is no assurance that actual results will be consistent with these forward-looking statements. These forward-looking statements are made as at the date of this news release, and the Fund assumes no obligation to update or revise them, either publicly or otherwise, to reflect new events, information or circumstances.

EBITDA and distributable cash are measures that are not recognized by Canadian generally accepted accounting principles (GAAP) and do not have standardized meanings prescribed by GAAP. EBITDA and distributable cash should not be construed as alternatives to earning, cash from operations or other financial measures determined in accordance with GAAP as indicators of the Fund's performance. The Fund's method of calculating EBITDA and distributable cash may differ from other companies and income trusts and, accordingly, may not be comparable to measures used by them.



ARCTIC GLACIER INCOME FUND
Interim Consolidated Balance Sheets
As at September 30, 2006 and 2005 and December 31, 2005 (unaudited)

September September December
(thousands) 30, 2006 30, 2005 31, 2005
-------------------------------------------------------------------------
ASSETS
Current assets
Cash $ 8,835 $ 10,351 $ 6,313
Accounts receivable 29,829 20,649 8,569
Inventories 9,941 5,116 6,012
Prepaid expenses 3,356 2,439 2,381
--------------------------------
51,961 38,555 23,275

Property, plant and equipment 157,917 122,267 119,847
Investments 914 - -
Other assets 8,351 3,012 2,714
Intangible assets 145,902 25,361 24,782
Goodwill 181,682 103,500 106,899
--------------------------------
$ 546,727 $ 292,695 $ 277,517
--------------------------------
--------------------------------

LIABILITIES AND UNITHOLDERS' EQUITY
Current liabilities
Accounts payable and
accrued liabilities $ 27,063 $ 12,658 $ 9,269
Distributions payable to unitholders 2,992 2,555 2,557
Current portion of payable to
vendors of acquired assets 1,621 - 1,686
Principal due within one year on
long-term debt 1,156 493 400
---------------------------------
32,832 15,706 13,912

Payable to vendors of acquired assets 10,688 - 1,686
Long-term debt 162,043 71,127 70,743
Convertible debentures 90,397 - -
Future income taxes 14,191 13,453 7,920

Unitholders' equity
Capital contributions 297,302 249,596 249,747
Contributed surplus 795 664 723
Equity portion of convertible debentures 10,161 - -
Cumulative translation adjustment (23,750) (20,898) (20,782)
Accumulated deficit (47,932) (36,953) (46,432)
---------------------------------
236,576 192,409 183,256
---------------------------------
$ 546,727 $ 292,695 $ 277,517
---------------------------------
---------------------------------


ARCTIC GLACIER INCOME FUND
Interim Consolidated Statements of Operations
Three and nine months ended September 30, 2006 and 2005 (unaudited)

Three Months Nine Months
-----------------------------------------
-----------------------------------------
(thousands, except per
unit amounts) 2006 2005 2006 2005
------------------------------------------------------------------------
Sales $ 104,180 $ 73,584 $ 179,306 $ 134,668
Cost of sales, selling,
general and
administration expenses 61,921 42,017 120,878 93,104
-----------------------------------------
Earnings before
the undernoted 42,259 31,567 58,428 41,564
Amortization 8,426 4,475 18,540 13,445
Interest 4,953 2,117 8,547 5,736
Acquisition
integration expenses 434 186 721 665
Loss (gain) on disposal of
property, plant and equipment (23) 53 (149) 57
Loss (gain) on foreign
exchange options 86 (269) (187) 92
Debt settlement costs - - 751 -
-----------------------------------------
Earnings before income taxes 28,383 25,005 30,205 21,569
Income tax expense
Current 26 119 366 468
Future 9,266 7,737 6,153 3,327
-----------------------------------------
9,292 7,856 6,519 3,795
-----------------------------------------
Earnings for the period $ 19,091 $ 17,149 $ 23,686 $ 17,774
-----------------------------------------
-----------------------------------------
Earnings per unit
Basic $ 0.59 $ 0.72 $ 0.79 $ 0.75
Diluted 0.52 0.72 0.78 0.75
-----------------------------------------


ARCTIC GLACIER INCOME FUND
Interim Consolidated Statements of Accumulated Deficit
Three and nine months ended September 30, 2006 and 2005 (unaudited)

Three Months Nine Months
--------------------------------------------
(thousands) 2006 2005 2006 2005
---------------------------------------------------------------------------
Accumulated deficit, beginning
of period $ (58,051) $ (47,254) $ (46,432) $ (35,135)
Earnings for the period 19,091 17,149 23,686 17,774
Distributions declared (8,972) (6,848) (25,186) (19,592)
--------------------------------------------
Accumulated deficit,
end of period $ (47,932) $ (36,953) $ (47,932) $ (36,953)
--------------------------------------------
--------------------------------------------


ARCTIC GLACIER INCOME FUND
Interim Consolidated Statements of Cash Flows
Three and nine months ended September 30, 2006 and 2005 (unaudited)

Three Months Nine Months
-------------------------------------------
-------------------------------------------
(thousands) 2006 2005 2006 2005
--------------------------------------------------------------------------
Cash from (used in):
Operating activities
Earnings for the period $ 19,091 $ 17,149 $ 23,686 $ 17,774
Adjustments for:
Amortization 8,426 4,475 18,540 13,445
Accretion of convertible
debenture principal and
payable to vendors of
acquired assets 620 - 780 -
Non-cash portion of debt
settlement costs - - 751 -
Loss (gain) on disposal of
property, plant and equipment (23) 53 (149) 57
Unit-based compensation 21 40 73 330
Unrealized loss (gain) on
foreign exchange options 126 (216) (94) 110
Future income taxes 9,266 7,737 6,153 3,327
-------------------------------------------
Funds from operations 37,527 29,238 49,740 35,043
Changes in working
capital items (2,871) 303 (2,531) (10,694)
-------------------------------------------
34,656 29,541 47,209 24,349
-------------------------------------------

Investing activities
Additions to property, plant
and equipment (2,698) (1,896) (15,081) (10,628)
Proceeds from disposal of
property, plant and equipment 61 73 588 280
Additions to other assets (142) (60) (7,693) (272)
Acquisition of
business operations (37,171) (8,456) (234,437) (8,456)
-------------------------------------------
(39,950) (10,339) (256,623) (19,076)
-------------------------------------------
Financing activities
Proceeds from long-term debt 35,370 - 109,112 2,318
Principal repayments on
long-term debt (17,189) (39,682) (17,516) (39,947)
Principal payments under
capital lease obligations - (12) - (36)
Payments of amounts
due to vendors - - (1,621) -
Convertible debentures issued - - 100,000 -
Units issued 283 47,385 47,555 47,875
Cash distributions paid (8,969) (6,438) (24,751) (19,120)
-------------------------------------------
9,495 1,253 212,779 (8,910)
-------------------------------------------

Foreign exchange loss on cash
held in foreign currency (248) (971) (843) (767)
-------------------------------------------
Increase (decrease) in cash 3,953 19,484 2,522 (4,404)
Cash (bank indebtedness),
beginning of period 4,882 (9,133) 6,313 14,755
-------------------------------------------
Cash, end of period $ 8,835 $ 10,351 $ 8,835 $ 10,351
-------------------------------------------
-------------------------------------------
Supplementary cash flow
information
Interest paid $ 4,210 $ 3,055 $ 6,912 $ 5,654
Income taxes paid 26 119 366 468
-------------------------------------------


The net present value of the portion of the purchase price or additional consideration on acquisitions of business operations satisfied by the issuance of deferred consideration in the amount of $10,328 (2005 - $nil) has been excluded from the financing and investing activities.



ARCTIC GLACIER INCOME FUND
Interim Schedule of Distributable Cash
Three and nine months ended September 30, 2006 and 2005 (unaudited)

Three Months Nine Months
---------------------------------------
---------------------------------------
(thousands, except per
unit amounts) 2006 2005 2006 2005
----------------------------------------------------------------------
Cash from operating activities $ 34,656 $ 29,541 $ 47,209 $ 24,349
Adjustments:
Changes in working
capital items 2,871 (303) 2,531 10,694
---------------------------------------
37,527 29,238 49,740 35,043
Less sustaining capital
expenditures, net of
dispositions (1,828) (668) (4,496) (2,722)
---------------------------------------
Distributable cash $ 35,699 $ 28,570 $ 45,244 $ 32,321
---------------------------------------
---------------------------------------
Weighted average
number of units 32,611.2 23,937.0 30,126.2 23,562.4
Distributable cash per unit $ 1.09 $ 1.19 $ 1.50 $ 1.37

Distributions declared $ 8,972 $ 6,848 $ 25,186 $ 19,592
Distributions declared per
unit $ 0.28 $ 0.28 $ 0.83 $ 0.82
Distributions declared per
unit (annualized) $ 1.10 $ 1.10 $ 1.10 $ 1.10
---------------------------------------



Contact Information

  • The Arctic Glacier Income Fund
    Robert Nagy
    President & CEO
    (204) 772-2473
    (204) 783-9857 (FAX)
    Toll free investor relations phone: 1-888-573-9237
    or
    The Arctic Glacier Income Fund
    Keith McMahon
    Executive VP & Chief Financial Officer
    (204) 772-2473
    (204) 783-9857 (FAX)
    Toll free investor relations phone: 1-888-573-9237
    Website: www.arcticglacierinc.com